A Terribly Unjust ‘Solution’ to the Entitlements Insolvency ‘Conundrum’

Donald Trump has been hammering Ron DeSantos over his prior stands on the big so-called “middle class entitlements,” Social Security and Medicare. “Don’t touch them” is Trump’s mantra, despite their well-known solvency problems. Washington Post columnist Henry Olsen has some advice for DeSantos. In Here’s a solution to DeSantis’s Social Security and Medicare conundrum, Olson advises:

Former president Donald Trump has been hammering Ron DeSantis over his past votes to significantly change Social Security and Medicare. The Florida governor and former congressman has attempted to wave away the attacks, but there’s a better way to counter Trump’s charges: Appeal to both GOP conservatives and populists by targeting entitlement benefits to those in need.

Social Security and Medicare both have a dirty secret: They spend tens of billions of dollars each year subsidizing well-to-do seniors who don’t need, or can pay more for, their benefits. 

That “well-to-do seniors who don’t need it” can collect benefits that they paid for and were promised is not “dirty,” secret or not. It is what makes Social Security and Medicare among the fairest welfare state programs in existence. The fact that personal financial health is not a factor is what gives these fundamentally immoral programs at least an element of justice.   

Social Security benefits are not means-tested; billionaire Elon Musk can collect Social Security when he retires. Similarly, Medicare’s hospital benefits (Part A) go to everyone on the same terms regardless of their finances. Premiums for Medicare’s outpatient and drug benefits (Parts B and D) are also only partially means-tested. The result is that millions of people who can pay full freight for their Medicare benefits don’t, and millions more use their Social Security benefits to top off their substantial private savings.

Whenever you hear the rich being targeted, you’ve encountered a hidden attack on the middle class. If you think cutting off the tiny handful of multi-billionaires would be enough to save Social Security and Medicare, you’re delusional. Elon Musk is window dressing. The real target is any responsible, frugal long-term planner who has earned a private pension, built up retirement savings like a 401k or IRA, or accumulated “substantial private savings,” whatever that means.

“Means testing” is short-hand for screwing the successful. It would destroy that element of justice. It would put everyone at the mercy of government authorities who would judge your “need,” and thus your worthiness to collect these benefits—and deny you if you are flagged by some statistical formula. You paid in hundreds of thousands of dollars over your working life, without your consent, depriving you of your right to use your own money as you judge best? Too bad. We’re going to deprive you of your promised benefits. Olsen suggests $100,000 of “non-Social-Security income” as the cutoff, after which your benefits would begin to be reduced and your premiums rise. But why not $75, 000, or $50,000? Pick your number. That Elon Musk’s benefits are treated the same as everyone else is a moral positive, not a program vice. Once you’ve cut off the Elon Musks of the country from their rightful benefits, you’ve opened the door to attacks on all retirees with savings. Olsen admits as much: “Millions of people who can pay full freight for their Medicare benefits don’t,” he writes, “and millions more use their Social Security benefits to top off their substantial private savings.” 

Millions! Don’t delude yourself into believing that you are not one of those millions. The best protection for your earned and paid for promised benefits is to leave Elon Musk’s benefits alone.

Social Security and Medicare are in deep trouble. They should be reformed. I’d start with personal accounts as a step on the way to elimination. But any reforms must be fair, and not include more draconian means-testing in addition to the limited means-testing already in the programs. It’s a matter of justice.

Related Reading:

The “Personal Account” Path to Ending Social Security

Your 401(k) - Obama’s Next Target

Governor Murphy’s Plan to ‘Make New Jersey Great Again’

The message from New Jersey’s “progressive” Governor Phil Murphy is--Your life belongs to me, so I will take care of you. In a NJ Star-Ledger guest column, Governor: My 2020 budget will continue investments in education, NJ Transit, ensure tax fairness, Murphy wrote:

As governor, my job is to lay the framework upon which New Jersey’s future is written. That story must be one in which the middle class expands and thrives, businesses grow, and investments are made.

On Tuesday, I will present a new budget that will help us write this story by prioritizing our single greatest asset: our people. This budget will be the blueprint for making our middle class more secure, and for building the ramp that will carry more families into its ranks.

Our budget will restore responsible fiscal stewardship, invest in our people and communities, and ensure tax fairness for middle-class families taking it on the chin from rising inequality and President Trump’s harmful federal tax changes.

Prosperity requires prudence, responsibility, and a vision for the future.

This is a sampling. A lot is vague. But we know that “investment” means government spending other people’s money, not private people spending their own. And of course, there is the obligatory attack on “inequality”--”middle-class families taking it on the chin from rising inequality”--the same middle class that buys the goods and fills the jobs created by “the rich”. Exactly how someone else’s unequal economic achievements represent a danger to my chin has always escaped me.

I posted these comments:

This article reads more like a plan to grow the welfare class, not the middle class. What does “middle class” mean? The middle class is marked by individual self-reliance, not dependence; earning, not handouts. Middle class status is achieved by personal effort, not given. Prosperity is driven by individuals motivated by their own self-improvement, not some collective “vision.”

NJ residents are not “our people”—and their wealth is not “ours”—for politicians to control, tax, and buy. The state doesn’t own the people. They are not “assets” to be used for the purpose of some collective political scheme to “Make NJ Great Again.”

Prosperity’s first requirement is individual freedom and independence, not submission. Since the theme of this article centers around investment, education, and business growth, let me offer a concrete proposal--universal school choice, so people can invest their own education tax dollars as they see fit for their own children. Imagine the business growth as the field of education is opened up to entrepreneurship. The government is ours, not the other way around, and it should leave us more free to secure our own legitimate middle class status. Government’s job is to secure our rights, not economic level, equally, so each person person can make of their lives what they will. Educational freedom is a good place to start.

Related Reading:

NJ’s Discriminatory ‘Pay Equity’ Bill Threatens Freedom and Competence

Mandatory Paid Sick Leave for NJ? NO!

As NJ State Closes 3 ‘Failing’ Charters, What About the Parents and the Children?

Related Viewing:

John Tamny discusses the genius of capitalism and why rising wealth inequality is a great thing in front of a packed audience at Oklahoma State University!  [Youtube: The Unrelenting Beauty of Wealth Inequality

Does Inherited Money Ruin Lives?

Quora is a social media website founded by two former Facebook employees. According to Wikipedia:

Quora is a question-and-answer website where questions are created, answered, edited and organized by its community of users. The company was founded in June 2009, and the website was made available to the public on June 21, 2010.[3] Quora aggregates questions and answers to topics. Users can collaborate by editing questions and suggesting edits to other users' answers.[4]

You can also reply to other users’ answers.

Recently from Quora: “What are the advantages of growing up wealthy (in the top 1%)?: Also what are the cons of growing up rich?”

A good answer came from Jenny Hawkins, speaking of her two cousins, each of whom inherited $1 million at age 21. I left this comment on her answer:

I like this essay, and I agree with much of it. But I must challenge this one statement—“I have seen that money ruin their lives.”

Did the money really ruin their lives? Or did these two kids squander the opportunity the money gave them? I think the latter.

I have a friend who inherited a well-established, thriving engineering business from his father. He had all the “advantages” of wealth. He went to an elite private school, then on to Princeton University. Far from squandering the opportunity, or even resting on his laurels, my friend worked hard and built the business into a size many times what he inherited. My friend eventually sold the business and retired a wealthy man. But to this day is an unspoiled, “down-to-Earth” guy with good values.

Or consider David and Charles Koch. They inherited a business worth $23 million. Did they squander the opportunity? No. Over a period of half a century, they built Koch Industries into a $100 billion dynamo. Did they lose their middle class values? No.

Most people I know started with little or nothing and achieved some level of economic success.

Here’s the key: “Middle class” is not defined in dollars. It’s defined in values. As Jenny observes, American freedom provides maximum opportunity for self-direction and self-fulfillment. But it is up to each of us to seize the opportunity that freedom provides. The same goes for money. Self-reliance is the hallmark of the American middle class. Did those two cousins make a mess of their lives? Apparently. Do a lot of rich kids squander the opportunity they’re handed? Probably. Blame the parenting. Blame the kids. But you shouldn’t blame the money any more than you should blame the freedom. As a character in Atlas Shrugged observed about inherited wealth, “

[M]oney is only a tool. It will take you wherever you wish, but it will not replace you as the driver. It will give you the means for the satisfaction of your desires, but it will not provide you with desires. . . .Money will not purchase happiness for the man who has no concept of what he wants: money will not give him a code of values . . . and it will not provide him with a purpose. . . . Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent.

Only the man who does not need it, is fit to inherit wealth–the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and you cry that money corrupted him. Did it? Or did he corrupt his money?

I believe that if we continue to enjoy substantial political and economic freedom—and that’s a big if—it is up to each one of us, whether we are born into wealth, poverty, the “1%,” or whatever we conceptualize as “the middle class,” to make the most of whatever “hand we are dealt.”

Related Reading:

Francisco’s Money Speech—originally published in Atlas Shrugged, © Copyright, 1957, by Ayn Rand, reprinted in Capitalism Magazine.

Is Inheritance anti-Capitalist and anti-Merit?

Inheritance Taxes, Inequality, and the Economy

Do Sanders’ and Trump’s Electoral Success Signal a ‘Middle Class Revolt?’

In a recent New Jersey Star-Ledger article, Mark Di Ionno argued that the electoral success of Donald Trump and Bernie Sanders is a sign of middle class revolt. He writes:

Bernie Sanders and Donald Trump voters are like first cousins in an estranged family. They say they don't like each other, but they share the same DNA.

Anger. Frustration. The sense that the American dream, or the America they dreamed of, is slipping away.

The seeds were flung with the scattered formation of the tea party in 2009, followed by Occupy Wall Street. Different political views, yes, but same viewpoint:That America was no longer a place by the people and for the people. That it favors politicians and their corporate/special interests financers, and chews up and spits out the little guy. [sic]

When campaign workers at both Sanders and Trump headquarters described their demographic yesterday, they sounded identical.

"We have teachers, police, firemen, union guys. They all say the middle class is falling apart."[sic]

"Trump and Bernie supporters come from the same line of frustration," said [NJ state Assemblyman John Wisniewski. "They see bankers engaging in reckless behavior and destroying the economy, and never punished. They see a culture of political corruption."

There may be some truth to this line of analysis. But the question is, is this really a middle class revolt? What, exactly is the middle class? What are its roots? One of the biggest beefs, referenced several times in the article, is the issue of “good-paying manufacturing jobs going overseas.” What do these Sanders/Trump supporters demand? That it be stopped, freezing the status quo? Did stagnation build the middle class? Is ‘middle class’ synonymous with an entitlement mentality and government favoritism?

I left these comments:

How did we get to the point where the American Dream is threatened and diminished by a system that “favors politicians and their corporate/special interests financers, and chews up and spits out the little guy?” [sic]. In short, the mixed economy, regulatory welfare state—now at its vastest, most intrusive size ever.

Politics is the realm of government force. Economics is the realm of voluntary cooperation and exchange. Politics and economics should not mix, for the same reasons politics and religion should not mix. When they do, what do you get? In religion, you lose religious freedom and the opportunity to live by your own conscience, religious or non-religious. Likewise, when government force into the economy grows, voluntarism diminishes, along with freedom and its corollary—economic opportunity. And then you get a politically corrupted economy whereby the government becomes the tool of politicians and special interests—not just financiers—competing to forcibly impose their agendas by law; i.e., to “rig the system” in their favor at others’ expense. That’s how we got the 2008-09 financial crisis and Great Recession; the result of politicians, allying with a handful of mortgage lenders and eventually coercing the rest, employing the vast accumulated regulatory apparatus of the state to push “affordable housing” policies on the economy in the 1990s and 2000s, leading to a Perfect Storm of government intervention that triggered a monumental housing bubble, bust, and ultimately economic collapse.

The favoritism increases in proportion to government’s power over the people’s economic affairs. Make no mistake. The favoritism starts with government controls, not “corporate/special interests financiers.” The dollar is no match for a bullet. Without the government’s corrupting regulatory and tax powers, there could be no “rigging” of the economy by any private economic faction, be it the environmental, labor, business, or whatever lobby, and no incentive to do so. A private company can set its own $15 minimum wage, but it cannot outlaw all sub-$15 jobs by imposing it across the entire economy. Only government can do that. Likewise, a private financier can bail out any incompetent bank or auto company with his own money if he chooses, but he cannot force taxpayers to help fund it. Only government can do that. The same goes for all economic controls and favors.

Yet what do these alleged middle class rebels gravitate towards? Do they demand more economic freedom and less government control, the only kinds of reforms that can protect “the little guy?” No. They gravitate toward two authoritarians whose idea of “help” consists of continuing to expand the very regulatory powers that incentivize, enable, and feed the growth of cronyism and political corruption of the economy—one a self-described “democratic socialist” who would increase “public control of the means of production”—more government control over the economy—by stripping the individuals that comprise “the public” of the economic freedom to produce and trade for his own benefit; the other a nationalistic pragmatist who would subordinate the individual’s economic control to his shifting whims and deal-making skills.

The true middle class is marked by enlightened self-interest, self-reliance, respect for achievement, respect for the rights of others, and a self-sufficient attitude that doesn’t seek handouts or favors, but instead exploits the freedom to work and rise by voluntary trade with others. A true middle classer does not expect the entire economy to stagnate for his benefit. A true middle classer, for example, would recognize that a company has as much right to fire a worker as a worker has to quit a job; that a company has a much right to hire the workers of its choice as a job-seeker has to accept the best job offer he can find; that just as the worker is not a slave of a company, the company’s owners are not slaves of their workers; that each has the moral right to pursue their own economic self-interest, whether their interests align or diverge—and that any attempt to politically infringe another’s economic freedom for short-term gain eventually hurts us all.

I sympathize with the “Anger [and] Frustration” of the revolt, such as it is. I sympathize with “The sense that the American dream, or the America they dreamed of, is slipping away.” But not with the revolt’s misidentification of the causes or solutions. There are government policies that drive investment and jobs outside our borders for other than sound economic reasons. But the policies—e.g. the corporate income tax—not the global economy, is the problem. Xenophobia on trade is not the solution.

These pseudo-middle class rebels more resemble the clueless inhabitants of Animal Farm than the enlightened middle class rebellion we really need. If Trump and Sanders are the extent of the rebellion the middle class can muster, the American Dream—which is really nothing more than the political and economic freedom to pursue your dreams without any coercive human impediments—is in deeper trouble than anyone imagined.

Related Reading:

Sanders is Cashing In on the Sanders Economy

Bernie Sanders the Demagogue Enters the Democratic Presidential Race

Trump’s Antitrust, Tax Attack on Bezos Still Not Enough Reason to ‘Dump Trump’

Gravity Payments and the Middle Class

In April, Dan Price, the CEO of a company called Gravity Payments a made big news splash by implementing a wage policy that dramatically reduced his own salary while dramatically raising the salaries of many of his employees. Price’s goal is to phase in a company-wide $70,000 “minimum wage.” At the time of the change, the company employed 120 people. As ABC News reported on April 14, 2015:

Dan Price, 30, announced this week that any employee at his company, Gravity Payments, making less than $70,000 annually will receive a $5,000-per-year raise or be paid a minimum of $50,000, whichever is greater. The aim: By December 2017, everyone will earn $70,000 or more.

To facilitate this change, Price said his salary will decrease to $70,000 from about $1 million until or unless the company's profits are greater than last year's approximately $2.2 million.

"My salary wasn't $1 million because I need that much to live, but that's what it would cost to replace me as a CEO," Price told ABC News. "I think CEO pay is way out of whack. It ended up impacting me, because I want the company to be sustainable even if something happens to me. Temporarily, I’m going down to the minimum until the company gets back to where it was."

In response to the New Jersey Star-Ledger’s 4/16/15 editorial Who will be the next CEO to embrace a salary cut?, which concerned Gravity Payments’ new policy, a correspondent with the screen name gyre posted these comments:

Dan Price is an unusual CEO, but we've seen other CEO's over the years go down his same path. I'm talking about the CEO's of Ben and Jerry's and the CEO of Malden Mills as prime examples of business owners who have figured out how to create a middle class in America. So many people who comment on nj.com are unable to grasp that the disparity between the rich and poor is a CHOICE that people make. Any economic system is a human invention. It can be modeled any way that the wealthy people choose. And, ultimately the poor, working poor, and middle class will make their own choice about the system that has been created for them; not necessarily because they want to, but because they have to. Well done, Dan Price.

Price’s scheme included cutting his own salary from $1 million to the same $70,000 as his other employees.

I left this reply to gyre:

I strongly and respectfully disagree. The “middle class” is not a welfare class of people whose well-being depends on favors from wealthy businessmen or nanny government. The hallmark of the middle class is self-reliance, not parasitism. The middle class is the product of economic freedom, which is a product of political freedom. Every individual, if left free, has it within his power to raise himself up economically by making himself more valuable productively in order to entice employers to pay more for his services—or to start his own business, become an employer, and strive for business success and great wealth. There are two types of “disparity between the rich and poor,” and we must distinguish between the two: Disparity resulting from economic/political freedom, and disparity resulting from statism. The first is moral and to be celebrated, the second is corrupt.

As to Price’s new wage policy: Is it practical to remove the incentive for individual employees to increase their income by improving their personal productive contribution? It’s doubtful, and I wouldn’t entrust my savings in the stock of a company that had this egalitarian type of compensation policy. How well can a company function if each person is tied to the same level of income, no matter what? Ask yourself how you’d feel if your extra effort and superior ability gets you no more than the co-worker next to you who exerts only minimal effort. I think profit-sharing and merit-based raises is a better way to give employees a chance to share in the company’s fortunes, without destroying the incentives that the company needs to thrive. Be that as it may, if Price’s company thrives, more power to it. It may work for a small company, where everyone knows everyone else. But if the policy fails, the company and its employees take the consequences, and its customers go elsewhere. Price is not modeling an “economic system.” Nor is he forcing anything on anyone. Nobody “has to” stay with his (or any) company. He’s just modeling his own company. That is the way a proper economic “system” should work.

----------------------

[At the time I wrote this, I was under the impression that Price’s scheme required everyone to make the same money. But it seems that some pay disparity will still occur at Gravity Payments. But that is irrelevant to the subject of this post.]

There is a touch of mysticism in gyre’s comment. He speaks of “the wealthy people” as a single, organic entity, as the communists thought of the “proletariat”; the Nazi’s of the “aryan race”; or the welfare statist’s of “the poor’ and now the “middle class.” But there are only individual people, of varying degrees of wealth, each of whom exerts control over his own life.

It’s true that those in charge of the government can impose an economic system (actually, a political system) on all others, and that when that happens its always people comprised of some of that society’s richest individuals doing the imposing. For example, we have a mixed economy; a mixture of freedom and government controls. A mixed economy is imposed by means of the imposition of government controls. In a mixed economy, people who get rich by cronyism (government favoritism) rise alongside people who get rich by production and trade. But a “system” can only be imposed under statism, not a republic constitutionally restricted to protecting individual rights.

A free market system, which is the inevitable consequence of a constitutional republic, is not a really “system” at all, in the sense of something controlled by some elite. A free market is a type of societal organization “controlled” by the commulative choices of all individual participants in their use of trade as a means of pursuing their own personal goals. Another name for this type of “control” is the law of supply and demand, or simply “the market.” But since nothing is imposed by government on people who don’t violate others’ rights, there is no system being imposed by anyone, since no individual can impose his will on others. The only type of association open to all individuals is voluntary trade. The only type of “control” anyone can exert is over his own decisionmaking, which constitutes his own piece of the market.

But gyre implies that, if you want to make $70,000 a year, but no one is willing to pay you more than $48,000, you are a helpless victim of some all-powerful entity. In gyre’s mind, “the wealthy people” have somehow managed to impose on you a “system” in which you can only get $48,000.

Related Reading:


Gravity Payments' Voluntary 'Minimum Wage' vs. Minimum Wage Laws

The Story of The Twentieth Century Motor Company—Atlas Shrugged by Ayn Rand

Did Unions Create the Middle Class?

From Middle Class to Welfare Class